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State Pension top up: Class 3A voluntary national insurance contributions

At B2B Business Advisors Limited we can advise individuals in the Milton Keynes area on aspects you need to consider before making voluntary national insurance contributions. Here are some of the issues that you should be aware of.

The government is providing a one-off opportunity to allow existing pensioners and those reaching State Pension age before 6 April 2016 to increase their additional State Pension. This will be achieved by payment of Class 3A voluntary national insurance contributions (NICs), which will improve their retirement income by obtaining inflation-proofed extra additional State Pension.

The opportunity to pay will be available from 12 October 2015 to 5 April 2017 and there are two entitlement conditions:

Contributors must have entitlement to a UK State Pension

They must reach State Pension age before 6 April 2016

Further details of the measures have been announced, including:

The amount of a Class 3A contribution (which reduces with age)

Specifying that one unit of Class 3A contributions will result in £1 per week of additional State Pension

Setting a £25 a week maximum additional State Pension that can be obtained through payment of Class 3A contributions

Providing for a cooling off period of 90 days from payment during which a refund can be obtained; applying also to the estate of a person who dies during that period

The additional pension purchased with class 3A NICs:

will increase in line with CPI inflation

will be inheritable on death, i.e. a surviving spouse will be entitled to at least 50% of the additional pension

will be taxable

will be taken into account in any assessment of income related means tested benefits, including pension credit, housing benefit and help with council tax.

The measure will apply to the whole of the UK but this is dependent upon the Royal Assent of the Northern Ireland equivalent of the Pensions Act 2014 to allow for the increase in the additional State Pension.

The government has set up a State Pension top up calculator, which can be found here.

Some examples are given in the table below. Please note that the contribution amounts are estimates:

Age at payment date

Rate for each additional pension unit of £1 per week

Extra units required

Lump sum contribution (£)

67

847

5

4,235

71

761

25 (max)

19,025

74

694

12

8,328

90

270

10

2,700

85

394

15

5,910

Individuals should consider making Class 3 contributions to cover gaps in their Basic State Pension provision, where possible, before making Class 3A contributions. These may give a better return than the figures above.

If you are looking for professional assistance from a team of accountants and business advisers in the Milton Keynes area, contact B2B Business Advisors Limited.

Registered in England, Company Registration number – 7906656.
Registered Office – 58b High Street, Stony Stratford, Milton Keynes, MK11 1AQ.
Registered with the Chartered Institute of Taxation as a firm of Chartered Tax Advisers.
Registered to carry out audit work and regulated for a range of investment business activities by the Institute of Chartered Accountants in England and Wales.